Price killed IBM deal

Big Blue rejects final offer from Global Foundries as too low

Published 8:45 pm, Friday, July 25, 2014

Malta

IBM's attempts to unload its microprocessor business on GlobalFoundries collapsed after IBM decided it wasn't going to get the price that it wanted, according to a new report by Bloomberg News.

The Bloomberg story, which cites "people familiar with the process," confirms previous reporting by the Times Union that the deal had died after GlobalFoundries made a final offer to IBM several weeks ago that IBM wouldn't accept.

IBM, which has been selling off its low-margin hardware units in favor of more profitable businesses in software, cognitive computing and Big Data initiatives, had reportedly been seeking as much as $2 billion for its chip business.

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That would appear to be a steal for a business unit that includes factories in East Fishkill, Burlington, Vt. and Montreal, as well as intellectual property and manufacturing experts that have led the industry for decades. A modern chip factory can cost as much as $10 billion. However, according to the Bloomberg story, GlobalFoundries "placed little or no value on IBM's factories because they are too old."

IBM's East Fishkill chip factory was built in 2001.

The deal at first appeared to make a lot of sense for GlobalFoundries since its Fab 8 factory in Saratoga County sits in the middle of the three IBM facilities. GlobalFoundries spokesman Travis Bullard declined to comment on the Bloomberg report. IBM has also refused to confirm that the talks even existed.

The Times Union reported last week that Mike Cadigan, the vice president and general manager of IBM's microelectronics unit, told managers at IBM's East Fishkill factory that the deal with GlobalFoundries had been called off. The Poughkeepsie Journal says that the proposed sale — which may have been structured as a joint venture — was code-named "Project Next."

A joint venture would allow IBM to sell off its expensive manufacturing operations while still controlling its valuable intellectual property, including patents covering innovative chip material designs and manufacturing processes. IBM recently announced plans to invest $3 billion in designing the chips of the future.

GlobalFoundries itself was initially formed as a joint venture between Advanced Micro Devices and the government of Abu Dhabi. The emirate now controls 100 percent of GlobalFoundries, although the company has a long-term deal to continue to make chips for AMD, an arrangement that would have also made sense for IBM.

The Bloomberg report says IBM has some tough decisions to make as it tries to get the company's annual earnings-per-share to $20 by next year.

"The breakdown of the talks is a setback for IBM Chief Executive Officer Ginni Rometty as she attempts to meet 2015 earnings goals by shedding less profitable units and reversing nine straight quarters of revenue declines," Bloomberg reporters Ian King and Alex Barinka wrote.